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An Analysis of Daily Events that Impact Your Money
Wednesday, July 1, 2020
The Morning Call--Bad news is irrelevant
The Morning Call
7/1/20
The
Market
Technical
The Averages (25812, 3100) kept the rally going. Volume remained weak; but breadth did improve. (1) the indices remained out of sync on their
200 DMA’s [Dow below, S&P above], (2) the Dow ended above the upper boundary
of its very short term downtrend; if it remains there through the close today,
it will void that trend. However, the
S&P finished below its comparable trend.
So, the Averages are now out of sync on two resistance/support
levels. As I have noted previously,
stocks will be directionless until those inconsistencies are corrected and (3) they
still have those ‘island tops’ weighing on them.
The short term the
technical picture remains shaky; and the indices are stuck in a narrow trading
range marked by the upper boundary of their very short term downtrend (on the
upside) and their DMA’s (on the downside).
Nonetheless, I am sticking with my assumption that the Market’s bias is
to the upside---at least until/unless the Averages revert their DMA’s to
resistance.
Gold was up,
setting another new seven year high. The long bond was down slightly but that did
not negate its reset to the upside. The
dollar was also down. It continues
unable to make a second higher high.
Tuesday in the
charts.
Fundamental
Headlines
The
economy
Yesterday’s stats
were mostly upbeat. Month to date
retail chain store sales, the April Case Shiller home price index and June consumer
confidence were better than anticipated while the June Chicago PMI came in below
estimates.
Overseas, the
numbers were mixed. On the plus side,
May Japanese housing starts and construction orders and May Chinese
manufacturing and nonmanufacturing PMI’s were above expectations. Negatively, May Japanese unemployment and industrial
production along with final Q1 UK GDP growth and business investment were below
forecasts.
The
Fed
The Fed is now a
large holder of US bond ETF’s.
The coronavirus
The latest media scare story.
The next six days will be crucial.
Lives versus jobs.
China
China ends ‘one
state, two systems’.
Bottom line. QEInfinity/Forever is with us for as far as
the eye can see. So far, events related
to the coronavirus, the riots and the India/China confrontation have proven
irrelevant to stock prices. Until that
changes, valuations will get richer.
The necessity of
enduring volatility.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
mortgage applications fell 1.8% while purchase applications were down 1.3%.
The
April Case Shiller home price index rose 0.9% versus estimates of +0.4%.
The
June Chicago PMI came in at 36.6 versus expectations of 45.0.
June
consumer confidence was reported at 98.1 versus consensus of 91.8.
The June ADP private
payroll reports showed job increases of 2,369,000 versus forecasts of
3,000,000. However, the big number was
the May revision from a loss of 2,800,000 jobs to a gain of 3,065,000.
International
May
German retail sales rose 13.9% versus predictions of 3.9%; its June
unemployment rate was 6.4% versus 6.6%.
The
final June Japanese manufacturing PMI was reported at 40.1 versus projections
of 37.8; the German PMI was 45.2 versus 44.6; the EU PMI was 47.4 versus 46.9;
the UK PMI was 50.1, in line.
June
Japanese consumer confidence was 28.4 versus estimates of 30.0.
Other
Median
household income in May.
What
I am reading today
How to live in a world
gone mad?
Enough is enough. What are you going to do about it?
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
Tuesday, June 30, 2020
The Morning Call--You can't keep a Fed fueled Market down
The Morning Call
6/30/20
The
Market
Technical
The Averages (25595, 3053) recouped a lot of Friday’s trashing,
though volume was weak and breadth mixed.
(1) the S&P voided Friday’s break which put it again out of sync
with the Dow; meaning stocks aren’t going to trend in either direction until
this condition is corrected, however, (2) both indices are in very short term
downtrends and (3) they still have those ‘island tops’ weighing on them.
The short term the
technical picture remains shaky; and the indices are stuck in a narrow trading
range marked by the upper boundary of their very short term downtrend (on the
upside) and their DMA’s (on the downside).
Nonetheless, I am sticking with my assumption that the Market’s bias is
to the upside---at least until/unless the Averages revert their DMA’s to
resistance.
How
stocks predict presidential elections.
Gold was up
fractionally, maintaining its upward momentum.
The long bond was down slightly but that did not negate its reset to the
upside. The dollar was up one cent. It was still unable to make a second higher
high. Higher gold and bond prices and a
lower dollar suggest a weakening economy.
Monday in the
charts.
Fundamental
Headlines
The
economy
Yesterday’s two
data releases were upbeat. May pending
home sales and the June Dallas Fed manufacturing index were well above
estimates.
Overseas, it was
just the opposite. May UK consumer credit,
June EU economic sentiment, industrial sentiment, services sentiment and June
German inflation were disappointing.
June EU consumer confidence was in line.
The
coronavirus
Data update
(deaths are down).
Fearmongering
in Houston.
The
Swedish experience. To be fair, this
post should also include decline in employment, decline in GDP, increased
deaths from untreated ailments and
increased drug, alcohol use and related deaths.
China
US/China trade relations get nasty.
Another flu virus
appears in China.
Xi signs national
security law for Hong Kong.
Forget ‘cooling
off’, India and China are building their military presence in disputed area.
The Fed
Powell testifies
before the house today. His prepared
remarks have been released. There is
nothing new; but if you want to read them, go for it.
Bottom line. You can’t keep a Fed liquidity fueled Market
down.
No revenues, no
profits, no problem.
Mean reversion is
a powerful force.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month to date
retail chain store sales declined less than in the prior week.
May pending home
sales rose 44.3% versus consensus of up 18.9%.
The June Dallas
Fed manufacturing index came in at -6.1 versus estimates of -26.0.
International
May
Japanese unemployment came in at 2.9% versus forecasts of 2.8%; industrial
production fell 8.4% versus down 5.6%; YoY housing starts were off 12.3% versus
-15.0%; construction orders were down 6.1% versus -12.3%.
The
June Chinese manufacturing PMI was reported at 50.9 versus expectations of
50.4; the nonmanufacturing PMI was 54.4 versus 52.1.
Final
Q1 UK GDP growth was -2.2% versus projections of -2.0%; business investment was
-0.3% versus 0.0%.
Other
Why
Modern Monetary Theory does not work.
The
declining role of the Council of Economic Advisors.
Six
high frequency indicators on the recovery.
What
I am reading today
A
brief look at the life of Wyatt Earp.
Trust the experts.
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
Monday, June 29, 2020
Monday Morning Chartology
The Morning Call
6/29/20
The
Market
Technical
Last week was a
rough one for the S&P. On Wednesday,
it established a new very short term downtrend.
Then on Friday, it broke below its 200 DMA (now support). Of course, that break won’t be confirmed
until the close on Wednesday. Also, as
you can see, it has unsuccessfully challenged its MA twice---on 6/11 and again
on last Thursday. So, there is clearly major support at this level On the other hand, the Dow has already
reverted its 200 DMA to resistance. That
said, until both indices successfully challenge their 100 DMA’s, I think the
bias in stock prices is to the upside.
The long bond finally
looks like it has broken out of its two month funk. Of course, it still needs to push above that
4/21 high to really cement a firm short term uptrend. Meanwhile, the long term technical picture has
remained reasonably solid.
On Friday, GLD
traded back to Tuesday’s seven year high.
So, its chart remains strong both on a short and long term basis. The assumption has to be that gold’s price is
going higher.
The dollar’s chart continues to be
the worst of the lot. There is a touch
of good news---it tested the lower boundary of its short term trading range
bounced and then made a higher low.
Still if investors are coming to believe that the economy is weakening
again, the gold and bonds up and the dollar down would reflect that scenario.
The VIX pin action
is really surprising to me. On Friday’s
700+ point down day in the Dow, the VIX’s performance was remarkedly docile. That suggests that investors are not as
alarmed as stocks would indicate. This
could possibly be explained by either the Robinhood day traders remaining
active in options markets or the FAANG stocks accounting for a disproportionate
share of Friday’s price decline.
Whatever the reason, this is something to watch as hint for Market
direction.
Fundamental
Headlines
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
International
May
UK consumer credit fell L4.59 billion versus estimates of -L2.5 billion.
June
EU economic sentiment was reported at 75.7 versus forecasts of 80.0; consumer
confidence was 14.7, in line; industrial sentiment was -21.7 versus -20.0;
servicers sentiment was -35.6 versus -20.0.
June
German inflation was 0.7% versus expectations of 0.4%.
Other
Global
trade recovery could be impacted by numerous disputes.
Update
on the oil market.
What
I am reading today
I
hate it when this happens.
The Kennedy assassination.
Part 2
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
Saturday, June 27, 2020
The Closing Bell
6/27/20
Statistical
Summary
Current Economic Forecast
2019 estimates (revised)
Real Growth in Gross Domestic Product 1.5-2.5%
Inflation +1.5-2%
Corporate Profits 6-9%
2020
Real Growth in Gross Domestic Product ?
Inflation ?
Corporate Profits ?
Current Market Forecast
Dow Jones Industrial Average
Current Trend (revised):
Short Term Trading
Range 18210-29540
Intermediate Term Uptrend 16100-32301
Long Term Uptrend 7006-38224
2019 Year End Fair Value
14500-14700
2020 Year End Fair Value
15100-15300
Standard & Poor’s 500
Current
Trend (revised):
Short Term Trading
Range 2188-3398
Intermediate
Term Trading Range 1813-3398 Long Term Uptrend 1352-4987
2019 Year End Fair Value 1790-1810
2020 Year End Fair Value 1870-1890
Percentage
Cash in Our Portfolios
Dividend Growth Portfolio 48%
High Yield Portfolio 50%
Aggressive Growth Portfolio 54%
Economics/Politics
The economic dataflow continues to come in
better (less bad) than consensus, meaning that while the US is in a recession
[a] the worst is probably behind us and [b] it was likely not as deep and will
not be as long as originally anticipated.
That said, there are too many unknowns to make any semblance of a
forecast. In my opinion, the economy
will be a question mark at best until there is some visibility to the magnitude
and extent of a recovery as well as the impact that the virus/lockdown will
have on American work, social and spending patterns.
The data (and primary indicators) this week
was upbeat again while the overseas stats were overwhelmingly positive.
Short term, the economic recovery continues though the
question of progress was raised this week as the second wave of coronavirus
infections appear to be upon us albeit sooner than many anticipated. How well it is contained will almost
certainly affect the shape of the recovery (V, U, W, etc.).
Longer
term, the economic growth will be influenced by how quickly virus treatments
and a vaccine are discovered as well as the permanent impact this
disease/government reaction will have on the spending and work habits of the
nation.
Whatever the shape of the recovery, I am not
altering my belief that long term economy will grow at a historically subpar secular
rate due to the twin burdens of egregiously irresponsible fiscal and monetary
policies---which, by the way, are becoming even more egregiously irresponsible
as a result of measures being taken by the government and the Fed in dealing
with the current crisis.
The
Market-Disciplined Investing
Technical
The Averages (25015, 3009) got beaten like a rented mule yesterday
on elevated volume and horrible breadth.
Plus (1) the S&P closed below its 200 DMA; now support. If it remains there through the close next
Wednesday, it will revert to resistance and put it back in sync with the Dow
[i.e. acting as resistance], (2) both indices are in very short term downtrends
and (3) they still have those ‘island tops’ weighing on them. There was one
potential bright spot---the VIX’s pin action was quite subdued for such a big
down day, suggesting that investors may be less alarmed than stocks indicate.
Hence, the short
term the technical picture has gotten shakier.
Nonetheless, I am sticking with my assumption that the Market’s bias is
to the upside---at least until/unless the Averages revert their DMA’s to
resistance.
Gold jumped back
to the level of Tuesday’s seven year high which was clearly a positive. The long bond was also strong, greatly improving
its short term technical picture. The
dollar was also up again, but only fractionally so. It was unable to make a second higher
high. Higher gold and bond prices and a
lower dollar suggest a weakening economy.
Friday
in the charts.
Fundamental-A
Dividend Growth Investment Strategy
The DJIA and the S&P are above ‘Fair
Value’ (as calculated by our Valuation Model).
At the moment, the important factors bearing on Fair Value (corporate
profitability and the rate at which it is discounted) are:
(1)
the extent to which the economy is growing. The recent data clearly shows that a bounce off of a recessionary low is
occurring---which is clearly a plus.
However, there are negatives to temper our optimism [a] the collapse in
economic activity has been so pronounced that any recovery will have to be significant
just to regain the prior level of economic activity, [b] a second wave of the
virus appears to be up on us; the question is, how much will it impact the
current rebound. The good news is that we
will know the answer reasonably soon, [c] we have no idea about either the ultimate
magnitude of the economic consequences of the government/Fed’s actions to
combat the virus in terms of lost wages, sales and profits or how much this
whole coronavirus affair will alter Americans’ long term living/spending
habits. In short, the economy may have
seen the worst but we have idea about what is to come.
More coronavirus data.
In my opinion, those factors will also ultimately
play a key role in determining the Market’s Fair Value [as determined by my
Valuation Model]. But, as I noted above,
there remains so much about them that we simply do not know; so, any attempt to
determine Fair Value would of necessity be by the WAG [wild ass guess] method. In the meantime, investors are pricing many
equities near the same valuations of pre-coronavirus, pre-US/Chinese trade
tensions and pre-riots levels. That
seems overly optimistic to me.
There are two other factors to consider.
[a] short term, US relations with China remain
tenuous. The risk here, of course, is a
major schism {or worse}with a huge trading partner which would certainly be a
negative for the economy and potentially the Markets.,
[b] longer term, with all the spending to
offset the results of a national lockdown {and it seems likely that yet another
stimulus bill will be enacted}, the budget deficit/national debt has gotten out
of hand. As you know, I believe that
once the national debt reaches a certain size relative to GDP {the US, the EU
and Japan are already there}, the debt has a stifling effect on economic
growth. Even under the current best case
{‘V’ shaped} recovery scenario, that extra debt will still be there, usurping
capital from the private sector and inhibiting its growth and
profitability. I believe that the
resulting stunted economic growth will ultimately work its way into equity
valuations.
(2) QEInfinity/Forever. That was helped along this week by the FDIC
loosening the restrictions of Volcker Rule, the net effect of which was to allow
banks to increase the leverage on their capital---just what this asset price
bubble needs. The good news is that the
Fed imposed restrictions on stock buybacks and dividends for at least the third
quarter [for all the good that will do].
As you know, I believe that massive injections
of liquidity by the global central banks’ QEInfinity policies have done little
to spur economic growth and, indeed, have inhibited it by destroying the functionality
of the pricing of risk and the efficient allocation of capital; and that there
will be an ultimate price to pay both for the economy and the securities
markets.
That said, throughout the entire QEInfinity
experiment, investors have shown a complete disregard for its consequences and
instead have used the increased liquidity to bid up asset prices to grossly
inflated valuations. Until that changes,
the bias in stock prices will remain to the upside.
Bottom line: I believe that the Averages and most segments
of the Market are overvalued [as determined by my Valuation Model]. This is not a time to be buying equities.
Nonetheless, there are certain segments of the Market that have been
punished severely with the stocks of the
companies serving those industries down 30-70%.
As a result, I will be putting cash to work in these beaten up stocks on
any Market decline.
As a reminder, my Portfolio’s cash position did
not reach its current level as a result of the Valuation Models estimate of
Fair Value for the Averages. Rather I
apply it to each stock in my Portfolio and when a stock reaches its Sell Half
Range (overvalued), I reduce the size of that holding. That forces me to recognize a portion of the
profit of a successful investment and, just as important, build a reserve to
buy stocks cheaply when the inevitable decline occurs.
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